2011 (5) TMI 348 - HC - Income Tax

Revision u/s 263 - Reference to Transfer Pricing Officer (TPO) - as recorded by the Commissioner that even in the submissions filed vide letter dated 10-2-2009 in response to the notice under section 263 of the Act, it has been stated that the details of commission payment were submitted by the assessee vide letter dated 25-8-2006 - It is true that though the Assessing Officer has not given detailed reasons in this regard, but there is nothing on record to suggest that he did not make any enquiry or applied his mind with regard to the submissions made by the assessee vide its letter dated 14-9-2006 - it is clear that an order cannot be termed as erroneous unless it is not in accordance with law - Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee - it is reiterated that the Assessing Officer called for certain clarifications through the questionnaire of the assessee and that the same were furnished with the required details - Decided in favour of the assessee

Issues Involved:
1. Legality of ITAT's upholding of CIT's action under section 263 regarding reference to Transfer Pricing Officer (TPO) for international transactions below 5 crores.
2. Legality of ITAT's upholding of CIT's action under section 263 in setting aside the assessment concerning "commission expenses" and "general charges."

Issue-wise Detailed Analysis:

1. Reference to Transfer Pricing Officer (TPO) for International Transactions Below 5 Crores:

The first issue addressed whether the ITAT was correct in law and on the facts of the case in upholding the action of the CIT under section 263, which directed a reference to the TPO despite the value of international transactions being below 5 crores. The Assessing Officer (AO) had accepted such transactions without reference to the TPO, merely following DBDT's circular No. 12/2011 and instruction No. 3 of 2003.

The court noted that the assessee company had engaged in international transactions with its associates, which had not been verified for arm's length pricing by the AO. The Commissioner observed that the AO did not conduct any enquiry regarding these transactions, making the assessment order erroneous and prejudicial to the revenue's interest. The Tribunal and the Commissioner both highlighted the absence of any examination of the international transactions by the AO, necessitating a reference to the TPO. Consequently, the court found no infirmity in the findings of the Commissioner and the Tribunal, answering Question No. 1 against the assessee and in favor of the revenue.

2. Setting Aside Assessment for "Commission Expenses" and "General Charges":

The second issue examined whether the ITAT was correct in upholding the CIT's action under section 263 in setting aside the assessment concerning "commission expenses" and "general charges." The AO had framed the assessment under section 143(3) after issuing a questionnaire under section 142(1), with full details filed by the assessee.

The court noted that the assessee had supplied the required information to the AO in response to the questionnaire. The Commissioner acknowledged that the details of commission payment and general charges were submitted by the assessee during the assessment proceedings. However, the Commissioner directed a de novo enquiry, stating it was unclear from the record if the AO verified the nature and allowability of the general charges.

The court referenced the decision in CIT v. Sunbeam Auto Ltd., emphasizing the distinction between "lack of inquiry" and "inadequate inquiry." It was noted that if there was any inquiry, even if inadequate, it would not justify the Commissioner passing orders under section 263 merely because of a different opinion. The court concluded that the AO had made inquiries and applied his mind to the submissions made by the assessee, thus it could not be said to be a case of lack of enquiry. Consequently, Question No. 2 was answered in favor of the assessee and against the revenue.

Conclusion:

The appeal was disposed of with the court upholding the CIT's action under section 263 regarding the reference to the TPO for international transactions but setting aside the CIT's action concerning commission expenses and general charges, finding the AO had conducted adequate inquiries.

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